Exam 5: Externalities, Environmental Policy, and Public Goods

For the Coase theorem to work there must be clear assignment of property rights.

Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. -Refer to Figure 5-9. The market equilibrium output level is

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a

Which of the following describes how a positive externality affects a competitive market?

Figure 5-1 Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-1. Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality. The economically efficient output is Q₂. In that case, the diagram shows

Public goods are distinguished by two primary characteristics. What are they?

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms "rivalry" and "excludability" as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

An advantage of imposing a tax on the producer that generates pollution is that

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that if the property rights are assigned and transactions costs are low

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Figure 5-13 Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13. If the government wanted to bring about the efficient level of gasoline production by imposing a tax, the actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

Article Summary According to the online real estate database company Zillow, homes located near a Whole Foods or Trader Joe's location have appreciated in value at double the rate of homes in other areas. From 1997 to 2014, the median U.S. home had appreciated 71 percent, while a median home near a Whole Foods or Trader Joe's appreciated 140 percent and 148 percent, respectively. Although some analysts believe this is due to these retailers often opening stores in high-income neighborhoods, Zillow researchers found that before a Whole Foods or Trader Joe's opened, homes near where the stores would eventually be appreciated at the same pace of comparable homes across the city, but after the stores opened the appreciation rate of homes in close proximity increased at a faster rate. Source: Marian McPherson, "Living near these 2 stores boosts a home's value," inman.com, June 19, 2017 -Refer to the Article Summary. Assuming the findings are correct and all else equal, people who do not shop at Whole Foods or Trader Joe's can still benefit from living near the stores, as is shown by the higher home values. As a result, the marginal social benefit from living near a Whole Foods or Trader Joe's is ________ the marginal private benefit to those who shop at these stores.

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. Why is there a deadweight loss?

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

"When it comes to public goods, individuals do not reveal their true preferences because it is not in their self interest to do so." Evaluate this statement.

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Which of the following describes how a negative externality affects a competitive market?

Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?